Korea’s Weak Job Market Shows Limits of Tech-Led Recovery

(Bloomberg) -- South Korea’s labor market took a turn for the worse in October, with the jobless rate rising and employment falling by the most in six months, highlighting the difficulty of normalizing hiring while the coronavirus casts a shadow over service businesses.

Weakness in the job market contrasts with rebounds in exports and manufacturing amid buoyant tech demand. The coronavirus has dealt a blow to the services industry, and the slump in that sector is likely to continue to weigh on employment into 2021, state-run think tank Korea Development Institute said in a report Wednesday.

The unemployment rate unexpectedly climbed to 4.2% from 3.9% in September, a separate report from the statistical office showed. The nation shed 421,000 jobs from a year ago, an eighth straight month of declining employment, led by losses in the real estate sector and hotels and restaurants.

South Korea has relied on trade to recover from recession, with net exports adding 3.7 percentage points to the second quarter’s 1.9% expansion. Semiconductors have led the recovery in shipments, posting monthly sales gains since July.

But there are clear limits to boosting employment from the current tech-led recovery, as the sector is highly automated. Per 1 billion won of increased output, the chip industry creates 1.9 positions, compared with with 20.7 for restaurants, 15.1 for accommodations, and 7.7 for cars, according to central bank data.

Job losses since the start of the pandemic have been heavily concentrated in the services sector.

In October, employment in the real estate industry contracted the most in percentage terms, declining 13% decline from a year ago, with 73,000 positions lost. The hotel and restaurant sectors lost 227,000 jobs, a 9.9% decrease. Wholesale and retail businesses shed 188,000 positions, a 5.2% fall.

The Korea Development Institute, in its semi-annual outlook report, projected employment increasing by only 100,000 jobs next year, about a third the pace seen in 2019. It warned that while the virus has so far hit service-sector jobs, there are signs that jobs in manufacturing are also taking a hit as as exports remain sluggish.

What Bloomberg Economics Says...

“While improving confidence and government efforts to spur consumption should help to encourage hiring, weakness in the labor market is poised to continue as long as the coronavirus remains a threat -- with the services sector particularly vulnerable.”

-- Justin Jimenez, economist

For the full report, click here

While South Korea has brought a summer virus wave under control and social distancing rules have been eased, consumers and businesses remain wary of a potential flareup that could again hurt economic activity.

“The economy is showing signs of improvement primarily around durable goods, leaving service jobs behind in the recovery,” said Jeong Won-il, an economist at Yuanta Securities. “Businesses won’t start hiring again until they feel confident the economy is back on track,”

©2020 Bloomberg L.P.